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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER: 1-12997
MAXIMUS, INC.
(Exact name of Registrant as specified in its Charter)
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VIRGINIA
(State or other jurisdiction of incorporation)
54-1000588
(I.R.S. Employer Identification Number)
1356 BEVERLY ROAD, MCLEAN, VIRGINIA 22101
(Address of principal executive offices including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 734-4200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
NEW YORK STOCK EXCHANGE
(Name of each Exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The approximate aggregate market value of voting stock held by
non-affiliates of the Registrant as of December 1, 1997 was $142,885,217 based
on the last reported sale price of the Registrant's Common Stock on the New York
Stock Exchange as of the close of business on that day. (On the same basis, the
aggregate value of the voting stock including shares held by affiliates was
$347,576,045). There were 14,790,970 shares of the Registrant's Common Stock
outstanding as of December 1, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be held on February 16, 1998, which Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Registrant's fiscal year-end of September 30, 1997, are
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
OVERVIEW
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. The Company believes
that it has been at the forefront of innovation in "Helping Government Serve the
People(TM)" since its inception in 1975. The Company's services are designed to
make government operations more efficient and cost effective while improving the
quality of the services provided to program beneficiaries. The Company applies
an entrepreneurial, private sector approach incorporating advanced technology in
large scale projects in almost every state in the nation. The Company believes
that its leading position in the emerging private sector health and human
services industry is reflected by its continued success in being awarded
competitively bid contracts by government health and human services agencies and
a corresponding growth in annual revenues from $19 million in fiscal 1990 to
$128 million in fiscal 1997.
MAXIMUS conducts its operations through two groups, the Government
Operations Group and the Consulting Group. The Government Operations Group
administers and manages government health and human services programs, including
welfare-to-work and job readiness, child support enforcement, managed care
enrollment and disability services. The Consulting Group provides health and
human services planning, information technology consulting, strategic program
evaluation, program improvement, communications planning and revenue
maximization services.
MARKET OPPORTUNITY
The Company believes that providing program management and consulting
services to government agencies in the health and human services sector
represents a significant market opportunity for the Company. Federal, state and
local government agencies in the United States spend over $200 billion annually
on the health and human services programs for which the Company markets its
services, including welfare, child care, child support enforcement, food stamps,
Social Security Disability Insurance, Supplemental Security Income and Medicaid.
These programs cost an estimated $21.0 billion in annual administrative costs.
The following chart sets forth currently available data from U.S. government
publications for programs served by the Company:
ESTIMATED NUMBER ESTIMATED ANNUAL
PROGRAM OF BENEFICIARIES SERVED ADMINISTRATIVE EXPENDITURES
------- ----------------------- ---------------------------
Social Security Disability Insurance... 5.9 million $ 1.1 billion
Supplemental Security Income........... 6.5 million 2.0 billion
Food Stamps............................ 28.0 million 3.7 billion
Medicaid............................... 35.1 million 7.7 billion
Temporary Assistance to Needy
Families............................. 13.6 million 3.5 billion
Child Support Enforcement.............. 9.9 million 3.0 billion
There has been a recent surge in legislation and initiatives to reform
federal, state and local welfare and health and human services systems. The most
significant of these legislative reforms is the Welfare Reform Act, which
restructures the benefits available to welfare recipients, eliminates
unconditional welfare entitlement and, most importantly, restructures the
funding mechanisms that exist between federal and state governments. Under the
Welfare Reform Act, states will receive block grant funding from the federal
government and will no longer be able to seek reimbursement in the form of
matching federal government funds for expenditures in excess of block grants.
Accordingly, states will bear the financial risk for the operation of their
welfare programs. A number of state governments are taking action to respond to
the changes created by welfare reform. For example, in 1997 the State of
Wisconsin awarded a performance-based contract to the Company to manage the
welfare-to-work program in a section of Milwaukee.
The Company believes that political pressures, combined with the financial
constraints imposed by the Welfare Reform Act, will accelerate the rate at which
state and local health and human services agencies seek
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new solutions to reduce costs and improve the effectiveness of entitlement
programs. The Company believes that government agencies are increasingly turning
to companies similar to MAXIMUS to administer programs more effectively.
Government outsourcing ranges from the engagement of sophisticated private
consulting firms working with government to improve the delivery of human
services to the complete outsourcing of certain functions of government health
and human services programs. The Company believes that many government agencies
have concluded that private companies, similar to MAXIMUS, offer cost savings
and increased efficiency due to their ability to: (i) accept contracts where
compensation is based on performance; (ii) attract and compensate experienced,
high-level management personnel; (iii) rapidly procure and utilize advanced
technology; (iv) vary the number of personnel on a project to match fluctuating
work loads; (v) increase productivity by providing employees with financial
incentives and performance awards and more readily terminating non-productive
employees; (vi) provide employees with ongoing training and career development
assistance; and (vii) maintain a professional work environment that is more
conducive to employee productivity.
STRENGTHS AND DIFFERENTIATIONS
MAXIMUS believes that it has been a pioneer in offering state and local
government agencies a private sector alternative to the internal administration
of government health and human services programs and has been innovative in
developing new business and market opportunities for the Company's services. The
Company believes that the following business strengths and differentiating
characteristics position it to capitalize on the significant market
opportunities presented by the environment of changing health and human services
program regulation and evolving technologies.
Single Market Focus. The Company believes that it is the largest company
dedicated exclusively to providing program management and consulting services to
government health and human services agencies. The Company has accumulated a
detailed knowledge base and understanding of the regulation and operation of
health and human services programs that allows it to apply proven methodologies,
skills and solutions to new projects in a cost-effective and timely fashion. The
Company believes that its exclusive focus, size and broad range of health and
human services program expertise differentiate it from both small firms and non-
profit organizations with limited resources and skill sets as well as from large
consulting firms that serve multiple industries but lack the focus necessary to
understand the complex nature of serving government agencies.
Proven Track Record. Since 1975, MAXIMUS has successfully applied its
entrepreneurial private sector approach to assisting government health and human
services agencies. Over the last five years, MAXIMUS has successfully completed
approximately 100 program management and consulting services projects for state
and local health and human services agencies serving millions of beneficiaries
in nearly every state. The Company believes that the successful execution of
these projects has earned MAXIMUS a reputation for providing efficient and
cost-effective services to government agencies while improving the quality of
services provided to program beneficiaries. This reputation has contributed
significantly to its ability to compete successfully for new contracts.
Wide Range of Services. Many of the Company's clients require their
vendors to provide a broad array of service offerings, something many of the
Company's competitors cannot provide. Engagements often require creative
solutions that must be drawn from diverse areas of expertise. The Company's
expertise in a wide range of services enables it to better pursue such
opportunities and to offer itself as a single-source provider of program
management, consulting and information technology services to government
agencies.
Proprietary Case Management Software Program. MAXIMUS has developed a
proprietary automated case management software program called the MAXSTAR(TM)
Human Services Application Builder. MAXSTAR(TM) is a software platform that
allows the Company to reduce project implementation time and cost. Because
government agencies are required to manage vast amounts of data and large
numbers of cases without access to advanced technology and experienced
professionals, the Company believes that MAXSTAR(TM), together with the
Company's information technology professionals, is a key element of its success.
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Experienced Team of Professionals. MAXIMUS has assembled an experienced
management team of former government executives, state agency officials,
information technology specialists and other professionals with backgrounds in
the public health and human services industry. The Company's employees
understand the problems and challenges faced in the marketing, assessment and
delivery of government agency services. Furthermore, since state and local
government administrators are subject to changing legislative and political
mandates, MAXIMUS has developed strong relationships with experienced political
consultants who inform and advise the Company with respect to strategic
marketing and legislative initiatives.
GROWTH STRATEGY
The Company's goal is to be the leading provider of program management and
consulting services to government health and human services programs. The
Company's strategy to achieve this goal includes the following:
Capitalize on Trends Toward Outsourcing Government Functions. The Company
believes that it is well-positioned to benefit from the expected increase in
demand for new program management and consulting services that will arise in an
environment characterized by changing regulation and evolving technology. The
Company believes that fiscal pressures will compel state governments to
rationalize program operations and upgrade existing technology to operate more
cost-efficient and productive programs. To achieve these efficiencies, MAXIMUS
believes that many government agencies will turn to outside experts for help.
Aggressively Pursue New Business Opportunities. The Company believes that
throughout its 22-year history, it has been a leader in developing innovative
solutions to meet the evolving needs of state and local health and human
services agencies. The Company plans to expand its revenue base by: (i)
marketing new and innovative program management solutions to the Company's
extensive client base; (ii) expanding the Company's client base by marketing the
Company's experience and established methodologies and systems; (iii) investing
in early identification of government bid opportunities; and (iv) submitting
competitive bids that leverage the Company's proven solutions for past projects.
Recruit Highly Skilled Professionals. The Company continually strives to
recruit top government management and information technology professionals with
the experience, skills and innovation necessary to design and implement
solutions to complex problems presented by resource-constrained government
agencies. The Company also seeks to attract middle-level consultants with a
proven track record in the health and human services field and a network of
political contacts to leverage the Company's existing management infrastructure,
client relationships and areas of expertise.
Pursue Strategic Acquisitions. Given the highly fragmented structure of
the government services and consulting marketplace, MAXIMUS believes that
numerous acquisition opportunities exist. Acquisitions can provide the Company
with a rapid, cost-effective method to increase its number of consultants,
broaden its client base, establish or expand its presence in a geographic region
or obtain additional skill sets.
There can be no assurance that the Company will be successful in
implementing any or all of its growth strategies or in achieving its goal, all
of which are subject to various risks, including legislative change,
requirements for significant up-front financial investment, continued ability to
attract and retain qualified employees and risks related to acquisitions.
SERVICES
The Company's services are designed to make government operations more
efficient and cost effective while improving the quality of the services
government agencies provide to program beneficiaries. The Company organizes its
operations into two groups: (i) the Government Operations Group, specializing in
the management of government health and human services operations; and (ii) the
Consulting Group, providing health and human services planning, information
technology consulting, strategic program evaluation, program improvement and
revenue maximization services.
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GOVERNMENT OPERATIONS GROUP
The Company's Government Operations Group is comprised of four divisions
specializing in the administration and management of government health and human
services programs.
Welfare Reform Division. The Company manages welfare-to-work programs by
providing a wide range of services, including eligibility determination,
emergency assistance, job referral and placement transition services such as
child care and transportation, community work training services, job readiness
preparation, case management services and selected educational and training
services. The Company's typical welfare-to-work contract involves the engagement
of the Company for a period of three to five years. The Company has served
approximately 250,000 welfare recipients at 30 locations in nine states. In
1996, for example, Fairfax County, Virginia awarded the Company a one-year, $2
million contract to place welfare recipients into unsubsidized employment. To
date, the Company has achieved a placement rate in excess of 90% on this
contract. In addition, in 1997, the State of Wisconsin awarded MAXIMUS a
three-year, $24 million contract to manage its welfare reform program in
Milwaukee County.
Child Support Enforcement Division. The Company provides a full range of
child support enforcement ("CSE") services, including: (i) outreach to and
interview of parents of children entitled to child support; (ii) establishing
paternity and obtaining, enforcing, reviewing and modifying child support
orders; and (iii) payment processing. The Company operates statewide client
service units, updates case arrearage and demographic data for new CSE automated
systems and provides training to CSE workers. The Company believes that it has
one of the largest CSE staffs in the private sector with over 500 professionals.
The Company has been performing these services since 1976, which the Company
believes is longer than any other private sector firm in the United States. The
Company is currently engaged in the management of CSE programs in 19 locations
in eleven states providing full child support services for approximately 210,000
cases and specialized services for an additional 300,000 cases. For example, the
Company currently is providing services under a five-year, $12 million,
full-service CSE program management contract in Nashville, Tennessee.
Federal Services Division. The Company provides a host of management
services geared toward case management, client monitoring and innovative
return-to-work strategies and program management and staffing. MAXIMUS became
the first company to operate a national case management and monitoring program
for disability beneficiaries in 1995 when it won a contract with the Social
Security Administration (the "SSA Contract") to provide referral and monitoring
services to beneficiaries with drug or alcohol disabilities. The SSA Contract
was the largest ever awarded by the SSA with potential revenues of $350 million.
Under the SSA Contract, the Company has successfully referred approximately
100,000 disabled beneficiaries into treatment as a first step to re-entering the
work force. The Company believes the skills and tools it employed in the SSA
Contract will be invaluable in pursuing large scale program management contracts
in other agencies of the federal government. For example, the Company is
currently pursuing opportunities at the Department of Justice and the Department
of Veterans Affairs.
Managed Care Enrollment Services Division. MAXIMUS has obtained
significant experience in managing certain aspects of Medicaid programs through
projects in five states. In these projects, MAXIMUS provides recipient outreach,
education and enrollment services; an automated information system customized
for the state; data collection and reporting; outreach to community-based
organizations and advocacy groups; design and development of program materials;
collection of enrollment premiums for uninsured participants; encounter data
reporting to health plans; and care coordination for Early and Periodic
Screening, Diagnosis and Treatment services. MAXIMUS currently operates the
California Options Project, a three-year managed care enrollment contract
awarded to the Company in 1996. This project is one of the largest Medicaid
managed care enrollment programs in the country with over two million program
beneficiaries. Other states where MAXIMUS currently operates Medicaid managed
care enrollment projects include Texas, Vermont, and Michigan.
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CONSULTING GROUP
The Company's Consulting Group is organized into four operational
divisions: the Human Services Division, the Information Technology Solutions
Division, the Systems Planning and Integration Division, and the International
Division.
Human Services Division. Through its Human Services Division, the Company
provides program planning and implementation, revenue maximization, and
evaluation consulting assistance to human services, health and education
agencies in state, local and federal government. The Company recently completed
comprehensive welfare reform planning and implementation projects for the
District of Columbia and the State of Nevada, and was recently engaged by the
District of Columbia to provide planning and implementation assistance for a new
Child Health Insurance Program. Revenue maximization projects, which involve
increasing federal financial participation in state health and human services
programs and are generally carried out on a contingency fee basis, have been
completed or are on-going in more than a dozen states. The states have received
more than $150 million in additional federal revenue as a result of MAXIMUS
efforts and expect current projects to yield another $150 million in new federal
revenue. The Company also is frequently engaged to conduct evaluations of
government programs and demonstrations. Program evaluation contracts are often
multi-year research projects involving the collection of extensive data using
automated data merges as well as surveys and case record reviews. Since 1994,
the Company has completed 55 welfare reform, revenue maximization and program
evaluation projects for more than 25 states and localities.
Information Technology Solutions Division. The Company provides computer
systems management and business process re-engineering services to state, county
and local governments. MAXIMUS provides services associated with project
management, assessments of current and future business needs, defining user
requirements, designing automated systems, developing requests for proposals,
and providing evaluation assistance, contract negotiations and quality assurance
monitoring services. Since 1991, MAXIMUS has provided information technology
systems and design services for projects in 42 states. MAXIMUS also specializes
in providing management services to agencies administering criminal justice
programs. The Company was selected by the State of Connecticut to provide
project management and system integration services for the criminal justice
information system Offender Based Tracking System for the Connecticut Office of
Policy and Management. This $5.5 million contract will run through September
2001. The Company also provides re-engineering services to such government
authorities as the County of Los Angeles. MAXIMUS is assisting the County (Board
of Supervisors, Auditor-Controller, Office of the Assessor,
Registrar-Recorder/County Clerk, and the Treasurer and Tax Collector) in the
development of the County's Property Tax System Business Process Re-engineering
Project. In addition, the Company provides assistance in assessing, evaluating,
testing and certifying government systems affected by the century date change /
Year 2000 problem. The Company is currently engaged in a contract to provide
Year 2000 project management services to the Department of Information
Technology for the State of Connecticut.
Systems Planning and Integration Division. The Company believes its
Systems Planning and Integration Division is a leading provider of strategic
information management, procurement and contracting, systems quality assurance,
and systems implementation services to the rapidly-expanding state health, human
services, and child support enforcement agency market. Using an experienced team
of skilled project managers and information technology professionals, MAXIMUS
has, in 45 projects across 30 states, assisted clients in the planning, design,
procurement and implementation of information systems totalling nearly $1
billion. These complex, high-profile systems -- which range from $5 million to
over $100 million and from 200 to 2,000 users -- serve as the mission critical
infrastructure for over $30 billion in annual health and human services
expenditures. Given the Company's successful track record, core competencies,
and national market presence, MAXIMUS is well positioned to take advantage of
the increased nationwide emphasis in state government on eligibility systems,
managed care, child protective services, family court services and child support
enforcement -- as well as to address welfare reform impacts on these programs.
The division also includes the new MAXIMUS health finance and management
consulting practice, with an emphasis on managed care, health delivery reform,
and healthcare performance management, and a card technologies practice focused
on electronic benefits transfer and driver's license applications. The synergies
provided by our Consulting and Government Operations Groups, coupled with
strategic hires, are expected to uniquely position MAXIMUS
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to take advantage of the new market opportunities created by the recently
enacted changes to Medicare and Medicaid managed care and by the new Child
Health Insurance Program.
International Division. The Company provides health care consulting and
systems services to assist foreign government agencies and health care
organizations responsible for the delivery of treatment services to large
populations. The Company automates and restructures clinical information systems
for large outpatient providers, hospital information systems, managed care
information systems, beneficiary management systems, and treatment network
management systems for managing large networks of health treatment facilities.
In addition, MAXIMUS consults with foreign government agencies in developing
health care policy reforms, treatment quality improvements and productivity
enhancements. The Company's health care systems software, developed in
ORACLE7(R), is a platform-independent and multi-language software package. The
Company has developed an Arabic language version of this software for use in the
Middle East. Currently, the division is engaged in a major automation project
for the United States Agency for International Development in Egypt. The
objective of the five-year, $22 million contract is to install a national health
care system database in 18 hospitals and 200 clinics throughout Egypt, allowing
the Egyptian Health Insurance Organization to better manage its facilities. The
Company also just signed a $3.5 million, three-year contract for a second major
automation project for the United States Agency for International Development in
Egypt. This project will involve the installation of a health information system
in three hospitals in Cairo. In Argentina, the Company recently signed a
three-year, $5 million contract pursuant to which it will provide organizational
and management services to the health plan of an employee union with almost
500,000 members.
BACKLOG
The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts and revenues from contracts which have
been awarded but not yet signed. Using the best available information, the
Company estimates backlog on a quarterly basis with respect to all executed
contracts. The backlog estimate includes revenues expected under the current
terms of executed contracts, revenues from contracts in which the scope and
duration of the services required are not definite but estimable and does not
assume any contract renewals or extensions.
Changes in the backlog calculation from quarter to quarter result from: (i)
additional revenues from the execution of new contracts or extension or renewal
of existing contracts; (ii) reduction in revenues from fulfilling contracts
during the most recent quarter; (iii) reduction in revenues from the early
termination of contracts; and (iv) adjustments to estimates of previously
included contracts.
At September 30, 1997 and September 30, 1996, the Company's backlog for
services pursuant to its contracts with federal, state and local health and
human services agencies was approximately $217 million and $87 million,
respectively.
MARKETING AND SALES
The Company's Government Operations Group obtains program management
contracts from state and local authorities by responding to RFPs issued by such
authorities. Whenever possible, prior to the issuance of an RFP, senior
executives in the Government Operations Group work with senior government
representatives, such as the governor, members of the governor's staff and the
heads of health and human services agencies to encourage them to outsource
certain health and human services functions. To identify opportunities to work
with government officials at early stages and to optimize the government's
receptivity to the Company's proposal to provide program management services,
the Company establishes and maintains relationships with elected officials,
political appointees and government employees. The Company occasionally engages
marketing consultants, including lobbyists to establish and maintain
relationships with these client representatives. The Company's consultants and
lobbyists provide introductions to government personnel and provide information
to the Company regarding the status of legislative and executive
decision-making.
Following the issuance of an RFP the Government Operations Group
participates in formal discussions, if any, between the contracting government
agency and the group of potential service providers seeking to
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modify the RFP and prepare the proposal. Upon the award of a government
operations contract, the Company's representatives then negotiate the contract
with representatives of the contracting government authority until all terms are
agreed.
The Consulting Group generates leads for consulting contracts by employing
lobbyists, maintaining relationships with government personnel in charge of
health and human services operations and communicating directly with current and
prospective clients. The Consulting Group participates in professional
associations of government administrators and industry seminars featuring
presentations by MAXIMUS personnel. Senior executives from the Consulting Group
develop leads through on-site presentations to the decision-makers. In most
cases, consulting contracts, like program management contracts, are obtained
after responding to a formal RFP. The Consulting Group's efforts in generating a
lead prior to the RFP can facilitate the Company's insight in responding to a
particular RFP. A portion of the Consulting Group's new business arises from
prior client engagements, in which case the Company may be the sole source of
services. In addition, clients frequently expand the scope of engagements during
delivery to include follow-on activities.
COMPETITION
The market for providing program management and consulting services to
state and local health and human services agencies is competitive and subject to
rapid change. The Company's Government Operations Group competes for program
management contracts with local non-profit organizations such as the United Way
and Goodwill Industries, government services divisions of large companies such
as Lockheed Martin Corp. and Electronic Data Systems, Inc., managed care
enrollment companies such as Foundation Health Corporation and specialized
service providers such as Andersen Consulting, America Works, Inc., Policy
Studies Incorporated and GC Services, Inc. The Company's Consulting Group
competes with the consulting divisions of the "Big 6" accounting firms as well
as Electronic Data Systems, Inc. Many of these companies are national and
international in scope and have greater financial, technical, marketing and
personnel resources than the Company. The Company anticipates that it will face
increased competition in the future as new companies enter the market. The
Company believes that its experience, reputation, industry focus and broad range
of services will enable it to compete effectively in its marketplace.
GOVERNMENT REGULATION
The market for the Company's services exists under a United States federal
regulatory framework of social programs which are largely implemented at the
state or local level. The following summarizes this framework:
Welfare Programs. Under Title IV-A of the federal Social Security Act, the
federal government provides financial assistance to underprivileged families
under several programs known as "Welfare," which have included the Aid to
Families with Dependent Children Program ("AFDC") and the Job Opportunities and
Basic Skills Training Program ("JOBS"). Under the AFDC program, cash welfare
payments are provided to needy children who have been deprived of parental
support or care and certain others in the household of the child. State
governments are required to define "need," set their own benefit levels,
establish (within federal limitations) income and resource limits and administer
the program or supervise its administration. Beginning in October 1990, the
federal government required each state to implement a JOBS program, which is
designed to help needy families with children to avoid long-term Welfare
dependency by providing education, training, job placement and other supportive
services, including child care.
Under the recently enacted Welfare Reform Act, AFDC and JOBS have been
combined into a single program, known as "Temporary Assistance to Needy
Families" or "TANF." Under TANF the federal government will make "block grants"
of funds to the states, to be administered at the state level in programs that
include certain mandatory work, education and job-related activities, including
job training and job search for the purposes of: (i) providing needy families
with time-limited assistance in order to end their dependency on government
benefits and achieve self-sufficiency; (ii) preventing and reducing
out-of-wedlock pregnancies, especially teenage pregnancies; and (iii)
encouraging the formation and maintenance of two-parent families. While the
federal act provides general requirements, states must determine how these
requirements will be met.
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Child Support Enforcement. The federal Child Support Enforcement ("CSE")
program, authorized under Title IV-D of the Social Security Act, was established
in 1975 in response to the increasing failure of many parents to provide
financial support to their children. The purpose of the CSE program is to help
strengthen families and reduce Welfare dependency by placing the responsibility
for supporting children on the parents rather than on the government. State
governments are generally required to locate absent parents, establish paternity
if necessary, obtain judicial support orders and collect the support payments
required by those orders. Child Support Enforcement has been the subject of
close scrutiny in recent years and is an area of health and human services where
government has sought significant private sector involvement including full
service program management efforts.
The Child Support Enforcement Amendments of 1984 mandated that state CSE
information systems, in order to receive matching federal funding, must meet
certain federal functional requirements covering case initiation, case
management, database linkage, financial management, enforcement, security,
privacy and reporting. The Family Support Act of 1988, effective October 1992,
mandated enhanced functional requirements for state CSE systems, including the
implementation of automated systems able to interface electronically with other
state systems such as Welfare, driver and vehicle registration and Medicaid
systems.
Social Security Disability Insurance and Supplemental Social Security
Income. Titles II and XVI of the federal Social Security Act provide for the
administration and distribution of financial assistance to disabled individuals
whose impairments make them unemployable. These benefits fall into two
categories: (i) Social Security Disability Insurance (Title II) provides
financial benefits to individuals who have contributed to Social Security during
a prior period of employment; and (ii) Supplemental Security Income or SSI
(Title XVI) provides financial benefits to individuals who meet all the
disability criteria used to determine eligibility under Title II, but who have
not made a sufficient contribution to Social Security. Recently, there has been
political pressure on the Social Security Administration (the "SSA") to review
the caseload of Title II and Title XVI beneficiaries to ensure that each
individual's disability still exists and that the extent of such disability
remains sufficient to preclude employment. In addition, the SSA has been under
pressure to increase and improve vocational rehabilitation efforts focused on
returning disabled beneficiaries to work and self-sufficiency.
Medicaid and Medicare. Medicaid and Medicare were implemented under Title
XVIII and XIX of the Social Security Act. Medicaid is a federal-state matching
entitlement program, that provides reimbursement for the cost of medical care to
low-income individuals who are aged, blind, disabled or AFDC beneficiaries, and
to certain pregnant woman and children. Within broad federal guidelines, each
state designs and administers its own program. Eligibility and claims processing
systems are automated by each state to handle this program, which is typically
the largest line item in a state budget. Federal assistance is also available on
a waiver basis for managed care enrollment for Medicaid recipients and similar
populations. Medicare is a federal entitlement program providing reimbursement
of a portion of the cost of medical care provided to the elderly.
HUMAN RESOURCES
As of November 30, 1997 the Company had 1,577 employees, consisting of
1,368 employees in the Government Operations Group, 108 employees in the
Consulting Group and 101 administrative employees. The Company's success depends
in large part on attracting, retaining and motivating talented, innovative and
experienced professionals at all levels. In connection with its hiring efforts,
the Company employs a full-time human resources coordinator, retains several
executive search firms and relies on personal and business contacts to recruit
senior level employees for senior management positions in the Government
Operations Group and the Consulting Group and for senior administrative
positions. When the Company's Government Operations Group is awarded a contract
by state or local government, the Company is often under a tight timetable to
hire project leaders and case management personnel to meet the needs of the new
project. To meet such needs, the Company engages in intensive short-term hiring
efforts at the project's location.
The Company's hiring focus is to identify candidates who are well suited by
background and temperament to serve the Company's government clients. The
Company's Government Operations employees are
8
10
largely drawn from government employment positions, while the Consulting Group
employees are largely selected from other consulting organizations and
government agencies.
MAXIMUS offers employees an internal training program designed to enhance
professional skills and knowledge. Offered twice a year, the three-day program
includes human resources topics such as cultural sensitivity, sexual harassment
and wrongful termination; marketing, proposal writing and public relations;
project administration topics, such as contract negotiations, project
management, deliverable preparation and client management; and technology
updates. In addition, MAXIMUS offers partial tuition reimbursement for employees
pursuing relevant degree programs and fully reimburses employees for relevant
training seminars and short courses.
The Company promotes loyalty and continuity of its employees by offering
packages of base and incentive compensation and benefits that it believes are
significantly more attractive than those offered by the government or other
government consulting firms in general. In addition, to attract and retain
employees, the Company has established several employee benefit plans, including
a 401(k) savings and retirement plan and the Company's 1997 Equity Incentive
Plan.
ITEM 2. PROPERTIES
The Company is headquartered in McLean, Virginia, in a 21,000 square foot
office building which is owned by the Company. The Company leases office space
for other management and administrative functions in connection with the
performance of its contracts in various states and foreign countries. On
November 30, 1997, the Company conducted operations from thirty-six leased
office facilities totaling approximately 318,000 square feet. See Note 6 of
Notes to Financial Statements. The lease terms vary from month-to-month to
three-year leases and are at market rates. The Company believes that additional
space will be required as the business expands and believes that it will be able
to obtain such space as needed.
ITEM 3. LEGAL PROCEEDINGS
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company and other
parties as third party defendants in an action by the State of Hawaii against
Network Six. In 1991, the Company's Consulting Group was engaged by the State of
Hawaii to provide assistance in planning for and monitoring the development and
implementation by Hawaii of a statewide automated child support system. In 1993,
Hawaii contracted with Network Six to provide systems development and
implementation services for this project. In 1996, the state terminated the
Network Six contract for cause and filed an action against Network Six. Network
Six counterclaimed against Hawaii that the state breached its obligations under
the contract with Network Six. In the Third Party Complaint, Network Six alleges
that the Company is liable to Network Six on grounds that: (i) Network Six was
an intended third party beneficiary under the contract between the Company and
Hawaii; (ii) the Company engaged in bad faith conduct and tortiously interfered
with the contract and relationship between Network Six and Hawaii; (iii) the
Company negligently breached duties to Network Six; and (iv) the Company aided
and abetted Hawaii in Hawaii's breach of contract. Network Six's complaint seeks
damages, including punitive damages, from the third party defendants in an
amount to be proven at trial. The Company believes that Network Six was not an
intended third party beneficiary under its contract with Hawaii and that Network
Six's claims are without factual or legal merit. The Company does not believe
this action will have a material adverse effect on the Company's business, and
it intends to vigorously defend this action. However, given the early stage of
this litigation, no assurance may be given that the Company will be successful
in its defense. A decision by the court in Network Six's favor or any other
conclusion of this litigation in a manner adverse to the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
On November 28, 1997, an individual who was a former officer, director and
shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential
9
11
value of the shares. He further alleges that the Company and its officers and
directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act
of 1934 and breached various fiduciary duties owed to him and claims damages in
excess of $10 million. The Company does not believe that this action will have a
material adverse effect on the Company's business, and it intends to vigorously
defend this action. However, given the early stage of this litigation, no
assurance may be given that the Company will be successful in its defense.
The Company is not a party to any material legal proceedings, except as set
forth above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
NAME AGE POSITION
- ------------------------------ ---- -----------------------------------
David V. Mastran.............. 55 President and Chief Executive
Officer
Raymond B. Ruddy.............. 54 Vice President of the Company and
President of Consulting Group
Russell A. Beliveau........... 50 President of Government Operations
Group
F. Arthur Nerret.............. 50 Vice President, Finance, Treasurer
and Chief Financial Officer
Donna J. Muldoon.............. 55 Vice President of Administrative
Services and Secretary
Susan D. Pepin................ 43 President of Systems Planning and
Integration Division
Lynn P. Davenport............. 50 President of Human Services
Division
Robert J. Muzzio.............. 63 Executive Vice President
Ilene R. Baylinson............ 41 President of Federal Services
Division
David V. Mastran has served as President and Chief Executive Officer since
he founded the Company in 1975. Dr. Mastran received his Sc. D. in Operations
Research from George Washington University in 1973, his M.S. in Industrial
Engineering from Stanford University in 1966 and his B.S. from the United States
Military Academy at West Point in 1965.
Raymond B. Ruddy has served as the Chairman of the Board of Directors since
1985 and President of the Company's Consulting Group since 1986. From 1969 until
he joined the Company, Mr. Ruddy served in various capacities with Touche Ross &
Co., including, Associate National Director of Consulting from 1982 until 1984
and Director of Management Consulting (Boston, Massachusetts office) from 1978
until 1983. Mr. Ruddy received his M.B.A. from the Wharton School of Business of
the University of Pennsylvania and his B.S. in Economics from Holy Cross
College.
Russell A. Beliveau has served as the President of the Company's Government
Operations Group since 1995. Mr. Beliveau has more than 20 years experience in
the Health and Human Services Industry during which he has worked in both
government and private sector positions at the senior executive level. Mr.
Beliveau's past positions include Vice President of Operations at Foundation
Health Corporation of Sacramento, California from 1988 through 1994 and Deputy
Associate Commissioner (Medicaid) for the Massachusetts Department of Public
Welfare from 1983 until 1988. Mr. Beliveau received his M.B.A. in Business
Administration and Management Information Systems from Boston College in 1980
and his B.A. in Psychology from Bridgewater State College in 1974.
F. Arthur Nerret has served as Treasurer and Chief Financial Officer of the
Company since 1994 and serves as Trustee of the Company's 401(k) Plan. He has
over 24 years of accounting experience as a CPA. From 1981 until he joined the
Company, Mr. Nerret held a variety of positions at Frank E. Basil, Inc. in
10
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Washington, D.C. including Vice President, Finance from 1991 to 1994 and
Director of Finance from 1989 until 1991. Mr. Nerret received his B.S. in
Accounting from the University of Maryland in 1970.
Donna J. Muldoon has served as the Vice President of the Company's
Administrative Services Division since 1989 and has served in various
administrative capacities since 1978. Before joining the Company, Ms. Muldoon
was an Administrative/Top Secret Control Officer with the Department of the Air
Force, Logistic Plans and Programs, from 1973 until joining the Company.
Susan D. Pepin has served as the President of the Company's Systems
Planning and Integration Division since 1994 and has been with the Company since
1988. She has over 17 years experience in technical management and consulting
with a focus on health and human services management information systems. Before
joining the Company, Ms. Pepin served as Director of Eligibility Systems for the
Massachusetts Department of Public Welfare from 1984 until 1987 and a Project
Leader for Wang Laboratories, Inc. from 1979 until 1984. Ms. Pepin received her
B.S. in Home Economics with a concentration in Consumer Studies and a minor in
Business from the University of New Hampshire in 1976.
Lynn P. Davenport has served as the President of the Company's Human
Services Division since he joined the Company in 1991 after 17 years of health
and human services experience in the areas of administration, productivity
improvement, management consulting, revenue maximization and management
information systems. Prior to joining the Company, Mr. Davenport was employed by
Deloitte & Touche, and its predecessor, Touche Ross & Co., in Boston,
Massachusetts, where he became a partner in 1987. Mr. Davenport received his
M.P.A. in Public Administration from New York University in 1971 and his B.A. in
Political Science and Economics from Hartwick College in 1969.
Robert J. Muzzio has served in various positions with the Company since
1979, including Executive Vice President since 1987, and has more than 30 years
of experience as a health care administrator, health systems researcher, and
personnel and manpower analyst. Prior to joining the Company, Mr. Muzzio held
many public and private sector positions in the health care industry, including
Life Support Coordinator for the Morrison Knudsen Saudi Arabia Consortium in
1978 and 1979 and Director of the Personnel Policies Division of the Office of
the Surgeon General, Department of the Army, from 1976 until 1978. Mr. Muzzio
received his M.A. in Health Care Administration from Baylor University in 1967
and his B.A. in Public Health from San Jose State College in 1956.
Ilene R. Baylinson has served as the President of the Company's Federal
Services Division since 1995 and as Chief Operating Officer from 1991 to 1995.
She has more than 17 years of experience in health and human services program
administration. After obtaining her B.A. from John Hopkins University in 1978,
Ms. Baylinson worked in a variety of positions for Koba Associates, Inc. of
Washington, D.C., including Senior Vice President for Corporate Management,
Marketing and Operations from 1989 until her departure and Corporate Vice
President/Director, Law and Justice Division from 1985 through 1991.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock commenced trading on June 13, 1997 on the New
York Stock Exchange under the symbol "MMS." As of December 1, 1997, there were
123 holders of record of the Company's Common Stock, and the Company's registrar
and transfer agent estimates that as of November 30, 1997 there were
approximately 2,000 beneficial owners of the Company's Common Stock. Prior to
June 13, 1997, there was no public market for the Common Stock or any other
securities of the Company.
The following table sets forth, for the fiscal periods indicated, the range
of high and low closing prices for the Company's Common Stock on the New York
Stock Exchange.
HIGH LOW
------ ------
YEAR ENDED SEPTEMBER 30, 1997
Third Quarter (from June 13, 1997)............ $18.37 $17.00
Fourth Quarter................................ $32.88 $17.88
As of September 30, 1997, the Company has granted options for 527,975
shares of the Company's Common Stock under the Company's 1997 Equity Incentive
Plan("Equity Plan") and options for 4,000 shares under its 1997 Director Stock
Option Plan. As of such date, 3,025 options had been exercised under the Equity
Plan at an exercise price of $1.46 per share.
Prior to its initial public offering, the Company and its shareholders
elected to be treated as an S corporation under the Internal Revenue Code. Under
the provisions of the tax code, the Company's shareholders included their pro
rata share of the Company's income in their personal income tax returns.
Accordingly, the Company was not subject to federal and most state income taxes
during the periods prior to the initial public offering. The completion of the
Company's initial public offering during June 1997 resulted in the termination
of the Company's S corporation status for income tax purposes. In connection
therewith, the Company recorded a deferred tax charge against income of
$2,566,000 for the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at June 12, 1997.
During 1997, the Company made cash distributions totaling $1,212,000 to its
then existing shareholders prior to the initial public offering (referred to
herein as "S Corporation Shareholders"). In connection with the initial public
offering, the Company made an additional distribution of $20,500,000 to its S
Corporation Shareholders and accrued an additional distribution at September 30,
1997 in the amount of $5,748,000, such aggregate amount representing the
undistributed earnings of the Company taxed or taxable to shareholders through
the date of the initial public offering.
The Company currently anticipates that it will retain all of its earnings
for development of the Company's business and does not anticipate paying any
cash dividends in the foreseeable future. Future cash dividends, if any, will be
paid at the discretion of the Company's Board of Directors and will depend,
among other things, upon the Company's future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions
and such other factors as the Board of Directors may deem relevant.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 and the financial statements and related
footnotes included as Item 8 in this Form 10-K. The historical results are not
necessarily indicative of the results of operations to be expected in the
future.
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues:
Government Operations Group(1).............. $18,071 $11,779 $16,951 $20,681 $65,757
Consulting Group............................ 12,522 15,138 20,698 25,902 30,578
SSA Contract(2)............................. -- 2,943 14,314 56,530 31,612
------- ------- ------- ------- -------
Total revenues......................... 30,593 29,860 51,963 103,113 127,947
Cost of revenues............................ 15,388 21,716 36,071 78,429 94,254
------- ------- ------- ------- -------
Gross profit................................ 15,205 8,144 15,892 24,684 33,693
Selling, general and administrative
expenses.................................. 10,178 6,979 9,078 13,104 16,782
Stock option compensation expense(3)........ -- -- -- -- 5,874
------- ------- ------- ------- -------
Income from operations...................... 5,027 1,165 6,814 11,580 11,037
Interest and other income................... 80 80 169 264 928
------- ------- ------- ------- -------
Income before income taxes.................. 5,107 1,245 6,983 11,844 11,965
Provision (benefit) for income taxes(4)..... 114 (5) 124 225 3,376
------- ------- ------- ------- -------
Net income(4)............................... $ 4,993 $ 1,250 $ 6,859 $11,619 $ 8,589
======= ======= ======= ======= =======
PRO FORMA STATEMENT OF INCOME DATA:(5)
Historical income before income taxes................................................... $11,965
Pro forma income tax expense............................................................ 4,786
-------
Pro forma net income.................................................................... $ 7,179
=======
Pro forma net income per share.......................................................... $ 0.54
=======
Shares used in computing pro forma net income per share(6).............................. 13,249
SEPTEMBER 30,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments.................................... $ 1,093 $ 326 $ 2,502 $ 3,333 $51,829
Working capital.................................. 6,818 6,855 13,184 22,700 62,567
Total assets..................................... 12,745 15,049 22,670 35,493 96,825
Redeemable common stock.......................... 6,971 6,889 10,578 16,757 --
Common Stock..................................... -- -- -- -- 66,730
Total shareholders' equity....................... 2,484 2,921 5,706 9,197 66,139
- ---------------
(1) In fiscal year 1993, the Company's Government Operations Group had revenues
of $10.4 million related to a significant contract that expired in July
1993. No further revenues were received under this contract after its
expiration.
(2) Represents revenues under a significant contract with the federal Social
Security Administration, which terminated pursuant to legislative action and
under which no revenues were earned after March 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) In January 1997, the Company issued options to various employees to purchase
403,975 shares of the Company's common stock at a formula price based on
book value. During 1997, the Company recorded a non-recurring charge against
income of $5,874,000 for the difference between the initial public offering
price and the formula price for all options outstanding. The Company
recorded a deferred tax benefit
13
15
relating to the charge in the amount of $2,055,000. The option exercise
price is a formula price based on the adjusted book value of the Common
Stock at September 30, 1996, and was established pursuant to the
pre-existing shareholder agreement.
(4) For each of the four fiscal years ended September 30, 1996, and during
fiscal year 1997 up to June 12, 1997, no federal income taxes have been
recorded due to the Company's S corporation status. For these periods, the
tax provision consists of state taxes for those states in which the Company,
rather than the shareholders, is liable for income taxes. Upon completion of
the initial public offering, the Company's S Corporation status terminated
for federal and state taxation purposes, and the Company recorded a deferred
tax charge against income of $2,566,000 for the cumulative differences
between the financial reporting and income tax basis of certain assets and
liabilities at June 12, 1997.
(5) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% combined effective tax rate) as if the
Company had been taxed as a C corporation during the full fiscal year ended
September 30, 1997 .
(6) Assumes 13,249,000 shares were issued and outstanding during the fiscal year
ended September 30, 1997 consisting of 12,305,500 weighted average shares
outstanding, the shares issuable upon the exercise of options granted in
January and June 1997, and the shares necessary to replace equity
distributed as a result of the S Corporation Dividend. See Note 3 of Notes
to Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. Founded in 1975, the
Company has been profitable every year since inception. The Company conducts its
operations through two groups, the Government Operations Group and the
Consulting Group. The Government Operations Group administers and manages
government health and human services programs, including welfare-to-work and job
readiness, child support enforcement, managed care enrollment and disability
services. The Consulting Group provides health and human services planning,
information technology consulting, strategic program evaluation, program
improvement, communications planning and revenue maximization services.
The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1997, revenues from these contract types were approximately
39%, 40%, 17% and 4%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to potential cost overruns or
inaccurate revenue estimates. As discussed further below, the SSA Contract was
terminated in December 1996 as a result of legislative action. Excluding the SSA
Contract, fiscal 1997 revenues from the above contract types were approximately
20%, 53%, 23% and 4%, respectively, of total revenues.
In October 1996, President Clinton signed into law an amendment to the
Social Security Act of 1935, effective January 1, 1997, that eliminated Social
Security Income and Supplemental Security Disability Insurance benefits based
solely on drug and alcohol disabilities. As a result of this legislative act,
the Social Security Administration terminated the SSA Contract effective at the
end of February 1997. All services provided to the Social Security
Administration were completed in the quarter ended March 31, 1997. The SSA
Contract contributed $31.6 million, $56.5 million, $14.3 million and $2.9
million to the Company's revenues in the fiscal years 1997, 1996, 1995 and 1994,
respectively.
The Government Operations Group's contracts generally contain base periods
of one or more years as well as one or more option periods that may cover more
than half of the potential contract duration. As of September 30 1997, the
Company's average Government Operations contract duration was 3 1/2 years. The
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Company's Consulting Group is typically engaged for periods in excess of 24
months. Indicative of the long-term nature of the Company's engagements,
approximately 59% of the Company's fiscal 1997 revenues were in backlog as of
September 30, 1996.
The Company's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. The Company's ability to accurately
predict personnel requirements, salaries and other costs as well as to
effectively manage a project or achieve certain levels of performance can have a
significant impact on the service costs related to the Company's fixed price and
performance-based contracts. Service cost variability has little impact on cost-
plus arrangements because allowable costs are reimbursed by the client. The
profitability of the Consulting Group's contracts is largely dependent upon the
utilization rates of its consultants and the success of its performance-based
contracts.
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation. Selling, general and
administrative expenses as a percentage of revenues have decreased in recent
years as these costs have been absorbed by a larger revenue base.
During its third fiscal 1997 quarter, the Company recognized two
significant charges against income. The completion of its initial public
offering resulted in the termination of the Company's S corporation status. As a
result the Company recorded a non-recurring deferred tax charge of $2.6 million
for the cumulative differences between the financial reporting and income tax
basis of certain assets and liabilities at June 12, 1997, the day prior to the
initial public offering. In connection with the offering, on January 31, 1997,
certain key employees of the Company surrendered rights to purchase shares of
Common Stock of the Company in exchange for options to purchase shares of Common
Stock at an exercise price of $1.46 per share. The Company recognized a non-cash
compensation charge against income equal to the difference between the initial
public offering price and the option exercise price for all outstanding options.
Compensation expense totaling $150,000 had been recognized through March 31,
1997, and, in the third fiscal quarter, the Company recognized an additional
charge against income of $5.7 million. The option exercise price was based on
the adjusted book value of the Common Stock at September 30, 1996, and was
established pursuant to the pre-existing shareholder agreement with these
employees.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
YEARS ENDED SEPTEMBER 30,
-----------------------------
1995 1996 1997
----- ----- -----
Revenues:
Government Operations Group............. 32.6% 20.1% 51.4%
Consulting Group........................ 39.8 25.1 23.9
SSA Contract............................ 27.6 54.8 24.7
----- ----- -----
Total revenues.......................... 100.0 100.0 100.0
===== ===== =====
Gross profit:
Government Operations Group............. 22.7 20.3 22.3
Consulting Group........................ 48.0 46.9 47.8
SSA Contract............................ 14.8 14.7 13.9
Gross profit as percentage of total
revenues......................... 30.6 23.9 26.3
Selling, general and administrative
expenses................................... 17.5 12.7 13.1
Stock option compensation expense....... -- -- 4.6
----- ----- -----
Income from operations....................... 13.1 11.2 8.7
Interest and other income.................... 0.3 0.3 0.7
----- ----- -----
Income before income taxes................... 13.4 11.5 9.4
Provision for income taxes................... 0.2 0.2 2.6
----- ----- -----
Net income................................... 13.2% 11.3% 6.7%
===== ===== =====
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
Revenues. Total revenues increased 24.1% to $127.9 million in fiscal 1997
from $103.1 million in fiscal 1996. Government Operations Group revenues
increased 26.1% to $97.4 million in fiscal 1997 from $77.2 million in fiscal
1996 due to an increase in the number of projects offset by a decrease in
revenue from the SSA Contract, which was terminated in February 1997. The SSA
Contract contributed $31.6 million to fiscal 1997 revenues as compared to $56.5
million to fiscal 1996 revenues. Excluding the SSA Contract, Government
Operations Group revenues increased 218.0% to $65.8 million in fiscal 1997 from
$20.7 million in fiscal 1996 due to increases in the numbers of contracts in the
Welfare Reform, Managed Care Enrollment Services, and Child Support Enforcement
divisions of the group. Consulting Group revenues increased 18.1% to $30.6
million in fiscal 1997 from $25.9 million in fiscal 1996 due to an increase in
the number of contracts and increased revenues from revenue maximization
contracts and international business. Revenues attributable to revenue
maximization contracts grew to $7.4 million in fiscal 1997 from $5.1 million in
fiscal 1996.
Gross Profit. Total gross profit increased 36.5% to $33.7 million in
fiscal 1997 from $24.7 million in fiscal 1996. Government Operations Group gross
profit increased 52.1% to $19.1 million in fiscal 1997 from $12.5 million in
fiscal 1996. As a percentage of revenues, Government Operations Group gross
profit increased to 19.6% in fiscal 1997 from 16.2% in fiscal 1996 primarily due
to the decreased revenue volume of the SSA contract in fiscal 1997, which had a
lower gross profit margin than other contracts in the Group, and to favorable
profit recognition adjustments on two large projects. Excluding the SSA
contract, Government Operations Group gross profit as a percentage of revenues
increased to 22.3% in fiscal 1997 from 20.3% in fiscal 1996. Consulting Group
gross profit increased 20.4% to $14.6 million in fiscal 1997 from $12.1 million
in fiscal 1996 due principally to the increased revenues. As a percentage of
revenues, Consulting Group gross profit increased to 47.8% in fiscal 1997 from
46.9% in fiscal 1996 which represents normal variability of gross profit from
period to period.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 28.1% to $16.8 million in fiscal 1997 from
$13.1 million in fiscal 1996. This increase in costs was due
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18
to increases in both professional and administrative personnel and professional
fees necessary to support the Company's growth and marketing and proposal
preparation expenditures incurred to pursue further growth. From September 30,
1996 to September 30, 1997, administrative and systems personnel increased 39.3%
from 61 to 85. As a percent of revenues, selling, general and administrative
expenses increased to 13.1% for fiscal 1997 from 12.7% for fiscal 1996 to
support the growth of the Company from 754 total employees at September 30, 1996
to 1,421 total employees at September 30, 1997.
Provision for Income Taxes
For the years ended September 30, 1995 and 1996, no federal income taxes
have been recorded due to the Company's S corporation status. For these years,
the tax provision consists of state taxes for those states in which the Company,
rather than the shareholders, is liable for income taxes. Upon completion of the
IPO, the Company's S Corporation status terminated for federal and state
taxation purposes, and the Company recorded a deferred tax charge against income
of $2,566,000 for the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at June 12, 1997. Income
taxes at normal corporate rates have been provided for the period from June 13,
1997 to September 30, 1997.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
Revenues. Total revenues increased 98.4% to $103.1 million in fiscal 1996
from $52.0 million in fiscal 1995. Government Operations Group revenues
increased 147.0% to $77.2 million in fiscal 1996 from $31.3 million in fiscal
1995. This growth was due to an increase in the number of projects and an
increase in revenues from the SSA Contract, which contributed $56.5 million to
fiscal 1996 revenues as compared to $14.3 million to fiscal 1995 revenues.
Excluding the SSA Contract, Government Operations Group revenues increased 22.0%
to $20.7 million in fiscal 1996 from $17.0 million in fiscal 1995. Consulting
Group revenues increased 25.1% to $25.9 million in fiscal 1996 from $20.7
million in fiscal 1995 primarily due to an increase in revenues from revenue
maximization contracts. The Consulting Group's nine revenue maximization
contracts in fiscal 1996 contributed $5.1 million to fiscal 1996 revenues as
compared to two revenue maximization contracts which contributed $2.2 million to
fiscal 1995 revenues.
Gross Profit. Total gross profit increased 55.3% to $24.7 million in
fiscal 1996 from $15.9 million in fiscal 1995. Government Operations Group gross
profit increased 110.6% to $12.5 million in fiscal 1996 from $6.0 million in
fiscal 1995. As a percentage of revenues, Government Operations Group gross
profit decreased to 16.2% in fiscal 1996 as compared to 19.0% in fiscal 1995,
primarily due to the increased revenue contribution of the SSA Contract, which
had a lower gross margin. Excluding the SSA Contract, as a percentage of
revenues, Government Operations Group gross profit decreased to 20.3% for fiscal
1996 from 22.7% for fiscal 1995. Consulting Group gross profit increased 22.2%
to $12.1 million in fiscal 1996 from $9.9 million in fiscal 1995 as a result of
higher revenues. As a percentage of revenues, Consulting Group gross profit
decreased to 46.9% in fiscal 1996 from 48.0% in fiscal 1995, which represents
normal variability of gross profit from year to year.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 44.3% to $13.1 million in fiscal 1996 from
$9.1 million in fiscal 1995. This increase in costs was due to increases in both
professional and administrative personnel necessary to support the Company's
growth. The total number of employees increased to 754 at September 30, 1996
from 439 at September 30, 1995. Additionally, marketing and proposal preparation
expenditures increased as the Company pursued further revenue growth. As a
percentage of revenues, selling, general and administrative expenses decreased
to 12.7% in fiscal 1996 from 17.5% in fiscal 1995 due to the Company's ability
to support its growth without a proportionate increase in associated costs.
17
19
QUARTERLY RESULTS
Set forth below are selected income statement data for the eight quarters
ended September 30, 1997. This information is derived from unaudited quarterly
financial statements which include, in the opinion of management, all
adjustments necessary for a fair presentation of the information for such
periods. This information should be read in conjunction with the Financial
Statements and related footnotes included as Item 8 in this Form 10-K. Results
of operations for any fiscal quarter are not necessarily indicative of results
for any future period.
QUARTERS ENDED
-------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues:
Government Operations Group.............. $ 4,102 $ 4,947 $ 4,896 $ 6,736 $ 8,029 $15,551 $19,158 $23,019
Consulting Group......................... 5,152 7,333 5,832 7,585 6,704 6,885 8,138 8,851
SSA Contract............................. 7,446 10,606 17,170 21,308 22,511 9,082 19 --
------- ------- ------- ------- ------- ------- ------- -------
Total Revenues........................... 16,700 22,886 27,898 35,629 37,244 31,518 27,315 31,870
Cost of revenues......................... 12,027 16,962 21,577 27,863 29,534 23,323 18,561 22,836
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............................. 4,673 5,924 6,321 7,766 7,710 8,195 8,754 9,034
Selling, general and administrative
expenses............................... 2,742 3,144 3,343 3,875 4,039 3,972 4,298 4,473
------- ------- ------- ------- ------- ------- ------- -------
Stock option compensation expense........ -- -- -- -- -- 150 5,724 --
Income (loss) from operations............ 1,931 2,780 2,978 3,891 3,671 4,073 (1,268) 4,561
Interest and other income................ 53 46 63 102 84 64 185 595
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes........ 1,984 2,826 3,041 3,993 3,755 4,137 (1,083) 5,156
Provision for income taxes............... 39 55 60 71 57 93 1,011 2,215
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........................ $ 1,945 $ 2,771 $ 2,981 $ 3,922 $ 3,698 $ 4,044 ($2,094) $ 2,941
======= ======= ======= ======= ======= ======= ======= =======
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the progress of contracts, revenues earned on contracts, the commencement and
completion of contracts during any particular quarter, the schedule of the
government agencies for awarding contracts, the term of each contract that the
Company has been awarded and general economic conditions. Because a significant
portion of the Company's expenses are relatively fixed, successful contract
performance and variation in the volume of activity as well as in the number of
contracts commencing or completed during any quarter may cause significant
variations in operating results from quarter to quarter. Furthermore, the
Company has on occasion experienced a pattern in its results of operations
pursuant to which it incurs greater operating expenses during the start-up and
early stages of significant contracts. In addition, the termination of the SSA
Contract and the absence of revenues thereunder after March 31, 1997,
significantly reduced the Company's revenue base as compared to previous
quarters. See previous discussion for the significant difference in the
provision for income taxes for the periods. No assurances can be given that
quarterly results will not fluctuate, causing a material adverse effect on the
Company's operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations. The Company's cash flows from operations were $17.3 million, $3.1
million and $2.7 million for the fiscal years ended September 30, 1997, 1996 and
1995, respectively. The increase in cash from operations in fiscal 1997 as
compared to fiscal 1996 is due primarily to higher net income earned during
fiscal 1997, after adjusting for the $5.9 million non-cash compensation charge
related to the Company's initial public offering, a net increase in current and
deferred income taxes payable of $2.9 million due to the termination of the
Company's S corporation status during fiscal 1997, and an increase in accrued
compensation and employee benefits payable at September 30, 1997 of $4.0 million
principally due to the increased number of employees, and an increase in
billings in excess of costs and estimated earnings of $6.5 million. The timing
of receipt of contract payments can vary and, combined with the requirement to
provide start-up funding for new projects, cash flows fluctuate from period to
period.
18
20
Of the $40.3 million of cash flow used for investing activities for the
year ended September 30, 1997, $39.9 million was used to purchase short-term
municipal and commercial bonds, which can be readily converted to cash if
needed. The Company has no material commitments for capital expenditures and, as
a services company, does not anticipate making any significant capital
expenditures during fiscal year 1998.
Cash flows from financing activities were $31.7 million in fiscal 1997. The
Company received proceeds of $53.8 million for the sale of stock in its initial
public offering, net of underwriters fees and other expenses. The Company made S
corporation distributions of $21.7 million, representing a portion of the
estimated income taxed or taxable to the S Corporation Shareholders through the
date of the initial public offering. Based upon the fiscal year 1997 income
allocated to the Company's S Corporation Shareholders, an additional $5.7
million of S Corporation Dividend was accrued at September 30, 1997, which is
anticipated to be paid during the fiscal quarter ending December 31, 1997. The
Company does not anticipate the payment of dividends in fiscal year 1998, other
than the remaining S Corporation Dividend payable to S Corporation Shareholders.
The Company has a $10.0 million revolving credit facility (the "Credit
Facility") with a bank, which may be used for borrowing and the issuance of
letters of credit. Outstanding letters of credit totaled $0.5 million at
September 30, 1997. The Credit Facility bears interest at a rate equal to LIBOR
plus an amount which ranges from 0.65% to 1.25% depending on the Company's debt
to equity ratio. The Credit Facility contains certain restrictive covenants and
financial ratio requirements, including a minimum net worth requirement of $60
million. The Company has not used the Credit Facility to finance its working
capital needs and, at September 30, 1997, the Company had $9.5 million available
under the Credit Facility.
In November 1997, the Company entered into a non-binding letter of intent
with another corporation to acquire 100% of the stock of such other corporation
in exchange for stock of MAXIMUS. In addition, in November 1997, the Company
entered into a non-binding letter of intent to purchase certain Medicaid
enrollment contracts and operations for a cash amount of $5.7 million, subject
to adjustments. It is anticipated that both of these transactions will be
finalized in the fiscal quarter ending March 31, 1998. It is not anticipated
that these acquisitions will have a material effect on the liquidity of the
Company.
The Company believes its current cash resources and marketable securities,
together with funds generated by operations, will be adequate to fund its
anticipated cash needs during the next 12 months, which may include start-up
costs associated with new contract awards, obtaining additional office space,
establishing new offices, expansion of international operations, investment in
upgraded systems infrastructure or acquisitions of other businesses,
technologies, product rights or distribution rights.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
See Note 2 of Notes to the Financial Statements appearing elsewhere in this
Form 10-K.
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence and strategies and the Company's expectations regarding its
ability to obtain future contracts, expand its market opportunities or attract
highly-skilled employees, are forward looking statements that involve risks and
uncertainties. These risks and uncertainties include legislative changes and
political developments adverse to the privatization of the provision of
government services; opposition from government employee unions; reliance on key
executives; impact of competition from similar companies; risks related to
possible acquisitions; and legal, economic and other risks detailed in Exhibit
99.1 to this Annual Report on Form 10-K.
19
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are included as
part of this Annual Report on Form 10-K:
Report of Independent Auditors
Balance Sheets as of September 30, 1996 and 1997
Statements of Income for the years ended September 30, 1995,
1996 and 1997
Statements of Changes in Redeemable Common Stock and
Shareholders' Equity for the years ended September 30, 1995,
1996 and 1997
Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997
Notes to Financial Statements
20
22
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
MAXIMUS, Inc.
We have audited the accompanying balance sheets of MAXIMUS, Inc. as of
September 30, 1996 and 1997, and the related statements of income, changes in
redeemable common stock and shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MAXIMUS, Inc. at September
30, 1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Washington, D.C.
November 28, 1997
21
23
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30,
---------------------
1996 1997
------- -------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 2,326 $10,960
Marketable securities............................................... 1,007 40,869
Accounts receivable................................................. 25,352 33,651
Costs and estimated earnings in excess of billings (Note 4)......... 2,949 5,605
Prepaid expenses and other current assets........................... 605 1,292
Deferred income taxes (Note 8)...................................... -- 729
------- -------
Total current assets.................................................. 32,239 93,106
Property and equipment at cost:
Land................................................................ 662 662
Building and improvements........................................... 1,676 1,721
Office furniture and equipment...................................... 1,206 1,645
Leasehold improvements.............................................. 188 188
------- -------
3,732 4,216
Less: Accumulated depreciation and amortization..................... (1,096) (1,346)
------- -------
Total property and equipment, net..................................... 2,636 2,870
Other assets.......................................................... 618 849
------- -------
Total assets.......................................................... $35,493 $96,825
======= =======
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 2,043 $ 3,099
Accrued compensation and benefits................................... 1,912 5,874
Billings in excess of costs and estimated earnings (Note 4)......... 5,208 11,749
Note payable........................................................ -- 188
Income taxes payable................................................ 19 3,881
Deferred income taxes............................................... 357 --
S corporation distribution payable (Note 9)......................... -- 5,748
------- -------
Total current liabilities............................................. 9,539 30,539
Deferred income taxes (Note 8)........................................ -- 147
------- -------
Total liabilities..................................................... 9,539 30,686
Commitments and contingencies (Notes 6 and 10)
Redeemable common stock (Note 9):
No par value; 30,000,000 shares authorized; 11,453,145 shares issued
and outstanding at September 30, 1996, at redemption amount...... 16,757 --
Shareholders' equity (Note 9):
Common stock:
No par value; 30,000,000 shares authorized; 14,790,470 shares issued
and outstanding at September 30, 1997............................ -- 66,730
Retained earnings (deficit)......................................... 9,197 (591)
------- -------
Total shareholders' equity............................................ 9,197 66,139
------- -------
Total liabilities, redeemable common stock and shareholders' equity... $35,493 $96,825
======= =======
See notes to financial statements.
22
24
MAXIMUS, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1996 1997
-------- --------- ---------
Revenues....................................................... $ 51,963 $ 103,113 $ 127,947
Cost of revenues............................................... 36,071 78,429 94,254
-------- --------- ---------
Gross profit................................................... 15,892 24,684 33,693
Selling, general and administrative expenses................... 9,078 13,104 16,782
Stock option compensation expense (Note 9)..................... -- -- 5,874
-------- --------- ---------
Income from operations......................................... 6,814 11,580 11,037
Interest and other income...................................... 169 264 928
-------- --------- ---------
Income before income taxes..................................... 6,983 11,844 11,965
Provision for income taxes (Note 8)............................ 124 225 3,376
-------- --------- ---------
Net income..................................................... $ 6,859 $ 11,619 $ 8,589
======== ========= =========
Pro forma data (unaudited) (Note 3):
Historical income before taxes............................ $ 11,965
Pro forma income tax expense.............................. 4,786
---------
Pro forma net income...................................... $ 7,179
=========
Pro forma net income per share............................ $ 0.54
=========
Shares used in computing pro forma net income per share... 13,249
See notes to financial statements.
23
25
MAXIMUS, INC.
STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
SHAREHOLDERS' EQUITY
--------------------
REDEEMABLE RETAINED
COMMON COMMON EARNINGS
STOCK STOCK (DEFICIT)
---------- ------- --------
Balance at September 30, 1994............................... $ 6,889 -- $ 2,921
Purchase of redeemable common stock from employees..... (548) -- --
Issuance of redeemable common stock to employees....... 277 -- --
Net income............................................. -- -- 6,859
Adjustment to redemption value of redeemable common
stock................................................ 3,957 -- (3,957)
S Corporation distributions............................ -- -- (117)
-------- ------- --------
Balance at September 30, 1995............................... 10,575 -- 5,706
Issuance of redeemable common stock to employees....... 229 -- --
Net income............................................. -- -- 11,619
Adjustment to redemption value of redeemable common
stock................................................ 5,953 -- (5,935)
S Corporation distributions............................ -- -- (2,175)
-------- ------- --------
Balance at September 30, 1996............................... 16,757 -- 9,197
Purchase of redeemable common stock from employees..... (626) -- --
Issuance of common stock to employees.................. -- 4 --
Compensation charge for stock options.................. -- 5,874 --
Net income............................................. -- -- 8,589
Adjustment to retained earnings upon termination of S
Corporation status................................... -- (9,083) 9,083
Reclassification of redeemable common stock upon
initial public offering.............................. (16,131) 16,131 --
Net proceeds from sale of common stock in initial
public offering...................................... -- 53,804 --
S Corporation distributions............................ -- -- (27,460)
-------- ------- --------
Balance at September 30, 1997............................... $ -- $66,730 $ (591)
======== ======= ========
See notes to financial statements.
24
26
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
--------------------------------
1995 1996 1997
------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 6,859 $11,619 $ 8,589
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................ 168 307 415
Stock option compensation expense....................... -- -- 5,874
Other................................................... (134) (22) (165)
Changes in assets and liabilities:
Accounts receivable, net.............................. (6,646) (9,411) (8,299)
Costs and estimated earnings in excess of billings.... 1,587 (2,173) (2,656)
Prepaid expenses and other current assets............. 245 (251) (687)
Other assets.......................................... (124) (101) (231)
Accounts payable...................................... 1,680 (157) 1,056
Accrued compensation and benefits..................... 161 1,119 3,962
Billings in excess of costs and estimated earnings.... (1,154) 2,090 6,541
Income taxes payable.................................. 41 (22) 3,862
Deferred income taxes................................. 62 120 (939)
------- ------- --------
Net cash provided by operating activities.................. 2,745 3,118 17,322
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......................... (180) (348) (484)
Purchase of marketable securities.......................... -- (1,000) (39,862)
------- ------- --------
Net cash used in investing activities...................... (180) (1,348) (40,346)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of expenses..... -- -- 53,804
S Corporation distributions................................ (117) (2,175) (21,712)
Payment for purchase of redeemable common stock............ (548) -- (438)
Issue of redeemable common stock to employees.............. 277 229 --
Issue of common stock to employees......................... -- -- 4
------- ------- --------
Net cash provided by (used in) financing activities........ (388) (1,946) 31,658
------- ------- --------
Net increase (decrease) in cash and cash equivalents....... 2,177 (176) 8,634
Cash and cash equivalents, beginning of year............... 325 2,502 2,326
------- ------- --------
Cash and cash equivalents, end of year..................... $ 2,502 $ 2,326 $ 10,960
======= ======= ========
See notes to financial statements.
25
27
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
MAXIMUS, Inc. (the "Company") provides a wide range of program management
and consulting services to federal, state and local government health and human
services agencies. The Company conducts its operations through two groups. The
Government Operations Group administers and manages government health and human
services programs, including welfare-to-work and job readiness, child support
enforcement, managed care enrollment and disability services. The Consulting
Services Group provides health and human services planning, information
technology consulting, strategic program evaluation, program improvement,
communications planning and assistance to state and local governments in
identifying and collecting previously unclaimed federal welfare revenues.
The Company operates predominantly in the United States. Revenues from
foreign-based projects were less than 10% of total revenues for the year ended
September 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the Company's more significant accounting
policies.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, in particular, estimates used in the earnings recognition
process. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition
The Company generates revenue under various arrangements, generally
long-term contracts under which revenues are based on costs incurred plus a
negotiated fee, a fixed price or various performance-based criteria. Revenues
for cost-plus contracts are recorded as costs are incurred and include a pro
rata amount of the negotiated fee. Revenues on long-term fixed price and
performance-based contracts are recognized as costs are incurred. The timing of
billing to clients varies based on individual contracts and often differs from
the period of revenue recognition. These differences are included in costs and
estimated earnings in excess of billings and billings in excess of costs and
estimated earnings.
Management reviews the financial status of its contracts quarterly and
adjusts revenues to reflect current expectations on realization of costs and
estimated earnings in excess of billings. Provisions for estimated losses on
incomplete contracts are provided in full in the period in which such losses
become known. The Company has various fixed price and performance-based
contracts that may generate profit in excess of the Company's expectations. The
Company recognizes additional revenue and profit in these situations after
management concludes that substantially all of the contractual risks have been
eliminated, which generally is at task or contract completion.
Marketable Securities
Marketable securities are classified as available-for-sale and are recorded
at fair market value with unrealized gains and losses, net of taxes, reported as
a separate component of shareholders' equity, if material.
26
28
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Realized gains and losses and declines in market value judged to be other than
temporary are included in investment income. Interest and dividends are included
in investment income. There are no material unrealized gains or losses on
marketable securities at September 30, 1997. At September 30, 1997 the
marketable securities consisted primarily of short-term municipal and commercial
bonds.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method based on estimated useful lives of 32 years for the
Company's building and between three and ten years for office furniture and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the life of the improvement or the
remaining term of the lease.
Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted rates expected to be in effect during the year in which the differences
reverse.
Prior to its initial public offering, the Company and its shareholders
elected to be treated as an S corporation under the Internal Revenue Code. Under
the provisions of the tax code, the Company's shareholders included their pro
rata share of the Company's income in their personal income tax returns.
Accordingly, the Company was not subject to federal and most state income taxes
during the periods prior to the initial public offering. The completion of the
Company's initial public offering during June 1997 resulted in the termination
of the Company's S corporation status for income tax purposes. In connection
therewith, the Company recorded a deferred tax charge against income of $2,566
for the cumulative differences between the financial reporting and income tax
basis of certain assets and liabilities at June 12, 1997.
Accounting Standards Not Adopted
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings per Share" which is required to be adopted in the
Company's quarter ending December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
basic earnings per share, the dilutive effect of stock options will be excluded.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments
of an Enterprise and Related Information" which established standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas and major customers. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable
27
29
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operating segments. The financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This statement is effective for
financial statements for periods beginning after December 15, 1997.
The Company does not expect the impact of adopting these new accounting
standards to be significant.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, which consist primarily of cash and cash equivalents, marketable
securities, accounts receivable and accounts payable, to approximate the fair
value of the respective assets and liabilities at September 30, 1996 and 1997.
3. PRO FORMA NET INCOME PER SHARE (UNAUDITED)
The pro forma net income per share presentation in the accompanying
statements of income has been computed giving effect to: (i) income tax expense
as if the Company had been taxed as a C corporation at an estimated rate of 40%
since the beginning of the period and (ii) the issuance, as of the beginning of
the pro forma period presented, of the number of shares of common stock
necessary to replace equity distributed as a result of the S corporation
distributions to the extent that such distributions exceed earnings for the
twelve months prior to the Company's initial public offering.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following components:
BALANCE SHEET CAPTION
------------------------------------
COSTS AND BILLINGS IN
ESTIMATED EXCESS OF COSTS
EARNINGS IN AND ESTIMATED
EXCESS OF BILLINGS EARNINGS
------------------ ---------------
September 30, 1996:
Costs and estimated earnings.............. $ 89,893 $ 60,489
Billings.................................. 86,944 65,697
-------- ---------
$ 2,949 $ 5,208
======== =========
September 30, 1997:
Costs and estimated earnings.............. $136,008 $ 117,586
Billings.................................. 130,403 129,335
-------- ---------
$ 5,605 $ 11,749
======== =========
Costs and estimated earnings in excess of billings relate primarily to
performance-based contracts which provide for billings based on attainment of
results specified in the contract and differences between actual and provisional
billing rates on cost-based contracts.
5. CREDIT FACILITIES
The Company maintained a $10 million revolving line of credit with a bank
during the years ended September 30, 1996 and 1997. Borrowings under this line
bear interest at LIBOR plus an amount which
28
30
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. CREDIT FACILITIES -- (CONTINUED)
ranges from 0.65% to 1.25% depending on the Company's debt to equity ratio.
Under the terms of the line, the Company is required to maintain at all times:
(i) an excess of current assets to current liabilities of not less than 1.5 to
1, (ii) net worth of $60 million, and (iii) a ratio of total liabilities to net
worth of not more than 1.5 to 1. There were no outstanding borrowings under the
line of credit facility at September 30, 1997. The line of credit expires on
March 31, 1999. At September 30, 1996 and 1997, the Company had letters of
credit outstanding amounting to $1,210 and $508, respectively.
6. LEASES
The Company leases office space under various operating leases, the
majority of which contain clauses permitting cancellation upon certain
conditions. The terms of these leases provide for certain minimum payments as
well as increases in lease payments based upon the operating cost of the
facility and the consumer price index. Rent expense for the years ended
September 30, 1995, 1996 and 1997 was $1,150, $2,282 and $4,023, respectively.
Minimum future payments under these leases are as follows:
YEARS ENDED SEPTEMBER 30,
1998............................................................. $3,402
1999............................................................. 2,895
2000............................................................. 1,775
2001............................................................. 1,018
2002............................................................. 358
Thereafter....................................................... 130
------
$9,578
======
7. EMPLOYEE 401(k) PLAN
The Company has a 401(k) plan for the benefit of all employees who meet
certain eligibility requirements. In the year ended September 30, 1996, the
Company implemented a program to match employee contributions. The plan also
allows management to make discretionary contributions. The Company made no
contributions to the plan during the year ended September 30, 1995. During the
years ended September 30, 1996 and 1997, the Company contributed $574 and $690
to the plan, respectively.
8. INCOME TAXES
For the years ended September 30, 1995 and 1996, no federal income taxes
have been recorded due to the Company's S corporation status. For these years,
the tax provision consists of state taxes for those states in which the Company,
rather than the shareholders, is liable for income taxes.
Upon completion of the initial public offering, the Company's S Corporation
status terminated for federal and state taxation purposes, and the Company
recorded a deferred tax charge against income of $2,566 for the cumulative
differences between the financial reporting and income tax basis of certain
assets and liabilities at June 12, 1997.
29
31
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. INCOME TAXES -- (CONTINUED)
The Company's provision for income taxes is as follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
------- ------- -------
Current provision:
State..................................... $ 62 $ 105 $ 593
Federal................................... -- -- $ 3,722
Deferred tax expense (benefit)................. 62 120 (939)
------- ------- -------
$ 124 $ 225 $ 3,376
======= ======= =======
The provision for income taxes resulted in effective tax rates that varied
from the federal statutory income tax rate as follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
------- ------- -------
Expected federal income tax provision.......... $ 2,374 $ 4,027 $ 4,068
Effect of income taxed directly to S
Corporation Shareholders..................... (2,374) (4,027) (3,893)
State income taxes............................. 124 225 503
Cumulative deferred income taxes recognized.... -- -- 2,566
Other.......................................... -- -- 132
------- ------- -------
$ 124 $ 225 $ 3,376
======= ======= =======
The significant items comprising the Company's deferred tax assets and
liabilities as of September 30, 1997 are as follows:
Deferred tax assets-current:
Liabilities for costs deductible in future periods......... $ 425
Billings in excess of costs and estimated earnings......... 4,699
-------
Total deferred tax assets - current............................. 5,124
Deferred tax liabilities - current:
Cash versus accrual accounting............................. 2,153
Costs and estimated earnings and excess of billing......... 2,242
-------
Total deferred tax liabilities - current........................ 4,395
-------
Net deferred tax asset - current................................ 729
=======
Deferred tax assets (liabilities) non-current:
Stock option compensation.................................. 2,056
Cash versus accrual accounting............................. (2,203)
-------
Net deferred tax (liability) - non-current...................... $ (147)
=======
Cash paid for income taxes during the years ended September 30, 1995, 1996
and 1997 was $9, $110 and $218, respectively.
30
32
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY
Initial Public Offering
The Company completed an initial public offering (the "IPO") of common
stock during June 1997. Of the 6,037,500 shares of common stock sold in the IPO,
2,360,000 shares were sold by selling shareholders and 3,677,500 shares were
sold by MAXIMUS, Inc. generating $53,804 in proceeds to the Company, net of
offering expenses.
S Corporation distributions
During fiscal year 1997, the Company made cash distributions to its S
Corporation Shareholders prior to the IPO totaling $1,212. In connection with
the IPO, the Company made an additional distribution of $20,500 to its S
Corporation Shareholders and accrued an additional distribution at September 30,
1997 in the amount of $5,748, such aggregate amount representing the
undistributed earnings of the Company taxed or taxable to shareholders through
the date of the IPO.
Redeemable Common Stock
Prior to the IPO, a shareholders' agreement obligated the Company to
purchase all shares offered for sale by the Company's shareholders at a formula
price based on the book value of the Company. In addition, shareholders were
obligated to sell and the Company was obligated to purchase at the formula price
all of the shares owned by the shareholders upon the shareholder's death,
disability or termination of employment. Accordingly, the redemption obligation
was reflected as redeemable common stock in the balance sheet at September 30,
1996. The Company's obligation to purchase common shares from shareholders
terminated upon completion of the IPO. Accordingly, amounts classified
previously as redeemable common stock were reclassified into shareholder's
equity.
Employee Stock Purchases
The Company entered into employee stock purchase agreements at various
times with certain employees that provided for the employee to purchase common
stock of the Company at the formula price. During the years ended September 30,
1995 and 1996, the Company sold 277,000 and 229,000 shares, respectively, under
these arrangements.
Stock Option Plans
The Company's Board of Directors established stock option plans during 1997
pursuant to which the Company may grant incentive and non-qualified stock
options to officers, employees and directors of the Company. Such plans also
provide for stock awards and direct purchases of the Company's common stock.
The vesting period and share price for awards are determined by the
Company's Board of Directors at the date of grant. Options granted during 1997
include those which were fully vested on issuance and others which vest over
periods from two to four years. The Company's Board of Directors has reserved
1.1 million shares of common stock for issuance under the Company's stock option
plans.
In January 1997, the Company issued options to various employees to
purchase 403,975 shares of the Company's common stock at a formula price based
on book value. During 1997, the Company recorded a non-recurring charge against
income of $5,874 for the difference between the IPO price and the formula price
for all options outstanding. The Company recorded a deferred tax benefit
relating to the charge in the amount of $2,055.
31
33
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting and Disclosure for
Stock-Based Compensation," which provides for a fair value based methodology of
accounting for all stock option plans. Under SFAS No. 123, companies may account
for stock options under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations and provide
pro forma disclosure of net income, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. The Company has elected to
follow APB 25 and related interpretations in accounting for its employee stock
options and provide pro forma fair value disclosure under SFAS 123.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a minimal valuation method with the
following assumptions - risk free interest rate 6.3%, dividend yield 0% and an
expected life of the option of four years.
For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to reflect such expense over the options' vesting period.
For the year ended September 30, 1997 pro forma net income and pro forma net
income per share resulting from the adjustment for stock option compensation was
as follows:
Pro forma net income............................................. $7,179
FAS 123 compensation expense..................................... (972)
------
Pro forma net income, as adjusted................................ $6,207
======
Pro forma net income per share, as adjusted...................... $ 0.47
======
A summary of the Company's stock option activity for the year ended September
30, 1997 is as follows:
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE FAIR
OPTIONS PRICE VALUE
------- ------ ------
Granted................................................... 531,975 $5.05 $3.58
Exercised................................................. (3,025) 1.46 3.56
-------
Outstanding at September 30, 1997......................... 528,950 5.07 3.58
=======
The Company had approximately 434,000 options exerciseable at September 30,
1997. The average contractual life of outstanding options at December 31, 1996
is ten years. Of the 528,950 options outstanding at September 30, 1997, 395,450
options have an exercise price of $1.46, 124,000 options have an exercise price
of $16.00, 5,500 options have an exercise price of $0.01 and 4,000 options have
an exercise price of $27.94.
10. COMMITMENTS AND CONTINGENCIES
Litigation
On February 3, 1997, the Company was named as a third party defendant by
Network Six, Inc. ("Network Six") in a legal action brought by the State of
Hawaii against Network Six. Network Six alleges that the Company is liable to
Network Six on various grounds. The Company believes Network Six's claims are
without merit and intends to vigorously defend this action. The Company believes
this action will not have a material adverse effect on its financial condition
or results of operations and has not accrued for any loss related to this claim.
32
34
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
On November 28, 1997, an individual who was a former officer, director and
shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and breached
various fiduciary duties owed to him and claims damages in excess of $10
million. The Company does not believe that this action will have a material
adverse effect on the Company's business, and it intends to vigorously defend
this action.
The Company also is involved in various other legal proceedings in the
ordinary course of its business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were disposed of
unfavorably.
DCAA Audits
A substantial portion of payments to the Company from United States
Government agencies is subject to adjustments upon audit by the Defense Contract
Audit Agency. Audits through 1993 have been completed with no material
adjustments. In the opinion of management, the audits of subsequent years are
not expected to have a material adverse effect on the Company's financial
position or results of operations.
11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts. To date,
these financial instruments have been derived from contract revenues earned
primarily from federal, state and local government agencies located in the
United States.
At September 30, 1996 and 1997, $14,815 and $1,436, respectively, of the
Company's accounts receivable were due from the United States Government.
Revenues under contracts with various agencies of the United States Government
were $17,851, $61,317 and $35,802 for the years ended September 30, 1995, 1996
and 1997, respectively. Of these amounts, $14,314, $56,530 and $31,611 for the
years ended September 30, 1995, 1996 and 1997, respectively, were revenues of
the government operations segment. As a result of legislation that eliminated
certain Social Security Administration program benefits, a contract with the
United States Government that contributed substantially all of the revenues of
the government operations segment for 1995, 1996 and 1997 was terminated by the
United States Government. This contract concluded during the second quarter of
1997.
At September 30, 1997, $10,482 of the Company's accounts receivable were
due from one state government. Revenues from contracts with this state were
$26,189 for the year ended September 30, 1997.
33
35
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. BUSINESS SEGMENTS
The following table provides certain financial information for each
business segment:
1995 1996 1997
------- -------- --------
Revenues:
Government Operations.................. $31,265 $ 77,211 $ 97,369
Consulting............................. 20,698 25,902 30,578
------- -------- --------
$51,963 $103,113 $127,947
======= ======== ========
Income (loss) from operations:
Government Operations.................. $ 1,636 $ 4,936 $ 6,164
Consulting............................. 5,178 6,644 4,873
------- -------- --------
$ 6,814 $ 11,580 $ 11,037
======= ======== ========
Identifiable assets:
Government Operations.................. $ 8,962 $ 19,369 $ 26,610
Consulting............................. 8,416 9,910 13,338
Corporate.............................. 5,292 6,214 56,877
------- -------- --------
$22,670 $ 35,493 $ 96,825
======= ======== ========
Capital expenditures:
Government Operations.................. $ 2 $ 4 $ 2
Consulting............................. 19 73 67
Corporate.............................. 159 271 415
------- -------- --------
$ 180 $ 348 $ 484
======= ======== ========
Depreciation and amortization:
Government Operations.................. $ 5 $ 99 $ 204
Consulting............................. 17 27 31
Corporate.............................. 146 181 180
------- -------- --------
$ 168 $ 307 $ 415
======= ======== ========
34
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I hereof and the remainder is incorporated
herein by reference from the discussion responsive thereto under the caption
"Election of Directors" in the Company's Proxy Statement relating to its Annual
Meeting of Shareholders scheduled for February 16, 1998 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Executive Compensation" the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Security Ownership of Certain
Beneficial Owners and Management" the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements are listed under Item 8 of this report.
2. FINANCIAL STATEMENT SCHEDULES
None.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1997.
(c) EXHIBITS
The Exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is incorporated
herein by reference.
35
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in the
city of McLean, Commonwealth of Virginia, on the 22nd day of December, 1997.
MAXIMUS, INC.
By: /s/ DAVID V. MASTRAN
----------------------------------
DAVID V. MASTRAN
President and Chief Executive
Officer
Each undersigned person hereby constitutes and appoints David V. Mastran,
Raymond B. Ruddy, F. Arthur Nerret and Lynnette C. Fallon, and each of them
singly, with full power of substitution and full power to act without the other,
as his or her true and lawful attorney-in-fact and agent, with full power to
sign for use, in his or her name and in the capacity indicated below, any and
all amendments to this Annual Report on Form 10-K of MAXIMUS, Inc. for the
fiscal year ended September 30, 1997, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorney-in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------- ---------------------
/s/ DAVID V. MASTRAN President, Chief Executive December 22, 1997
- ------------------------------------- Officer and Director
DAVID V. MASTRAN (Principal Executive
Officer)
/s/ RAYMOND B. RUDDY Chairman of the Board of December 22, 1997
- ------------------------------------- Directors
RAYMOND B. RUDDY
/s/ F. ARTHUR NERRET Chief Financial Officer December 22, 1997
- ------------------------------------- (Principal Financial and
F. ARTHUR NERRET Accounting Officer)
/s/ RUSSELL A. BELIVEAU Director December 22, 1997
- -------------------------------------
RUSSELL A. BELIVEAU
/s/ JESSE BROWN Director December 22, 1997
- -------------------------------------
JESSE BROWN
/s/ LYNN P. DAVENPORT Director December 22, 1997
- -------------------------------------
LYNN P. DAVENPORT
/s/ ROBERT J. MUZZIO Director December 22, 1997
- -------------------------------------
ROBERT J. MUZZIO
/s/ DONNA J. MULDOON Director December 22, 1997
- -------------------------------------
DONNA J. MULDOON
/s/ SUSAN D. PEPIN Director December 22, 1997
- -------------------------------------
SUSAN D. PEPIN
/s/ PETER B. POND Director December 22, 1997
- -------------------------------------
PETER B. POND
36
38
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- ------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of Company. (1)
3.2 Amended and Restated By-laws of Company. (1)
4.1 Specimen Common Stock Certificate. (1)
10.1 1997 Equity Incentive Plan. (2)
10.2 1997 Director Stock Option Plan, as amended. Filed herewith.
10.3 1997 Employee Stock Purchase Plan. (2)
10.4 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and David V. Mastran. (2)
10.5 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and Raymond B. Ruddy. (2)
10.6 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and Rusell A. Beliveau. (2)
10.7 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and Susan D. Pepin. (2)
10.8 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and Ilene R. Baylinson. (2)
10.9 Executive Employment, Non-Compete, Confidentiality and Stock Restriction
Agreement by and between the Company and Lynn P. Davenport. (2)
10.10 Form of Indemnification Agreement by and between the Company and each of the
directors of the Company. (2)
10.11.1 Letter Agreement, dated September 30, 1997, between the Company and Crestar
Bank with respect to a $10 million line of credit. Filed herewith.
10.11.2 Commercial Note, dated September 30, 1997, in the amount of $10 million,
issued by the Company to Crestar Bank. Filed herewith.
10.12 California Options Project Contract, dated October 1, 1996, by and between the
Company and the Department of Health Services of the State of California. (2)
11.1 Statement re Computation of Pro Forma Net Income Per Share. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed herewith.
24.1 Power of Attorney. Contained on signature page hereto.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward Looking Statements. Filed herewith.
- ---------------
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 1-12997) on August 14, 1997 and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 333-21611) declared effective on June 12, 1997 and incorporated
herein by reference.